How a clever bargaining strategy can secure Britain good Brexit deal

Theresa May will trigger Article 50 of the Lisbon Treaty tomorrow - meaning Brexit negotiations can commence. Abhinay Muthoo, Professor of Economics and Dean of Warwick in London, writes his expert comment in The Conversation:

The complexity is due to several factors but especially because there are multiple issues at stake (including the potentially intertwined issues of “free movement of people” and “free trade”); there are multiple parties with divergent interests involved in the negotiations; and there is a deadline of two years by when the negotiations must end (with or without an agreement).

The importance of these negotiations stems from the obvious fact that the outcome will impact on a large number of people, businesses, regions and countries. And not just across the UK but across the whole of the EU – and indeed across other parts of the world.

The ‘deadline effect’

Both negotiating teams (from the UK and from the EU) have some tough negotiators, and they may be prepared to drag the negotiations out until they are close to the deadline in order to try to get the best deal for their respective side. This phenomenon – that an agreement is reached at the “eleventh hour” – is known as the “deadline effect”.

That said, to carefully assess whether a deal will be reached and, if so, when and who is likely to get the best of the deal, we need to understand some of the strategies the two negotiating teams might use over the coming weeks and months.

What factors determine the outcome of such negotiations? What are the sources of bargaining power? What strategies can help improve one’s bargaining power? What variables determine whether parties to a dispute will reach a negotiated settlement or fail to do so? These are the sort of questions that are addressed by the art and science of negotiation.

Compromise is the name of game

The prime minister has said she wants a deal that gives the UK the best access to the single market but will not agree to the free movement of people. The EU on the other hand has made it clear that these two principles go hand-in-hand.

If agreement is going to be reached on these two crucial dimensions, some compromise will be necessary from both sides. Both parties have a common interest to reach a deal on a number of issues, including on trade. At the same time, however, they have a number of conflicting interests.

This is the bargaining situation that the UK and EU find themselves in. They would like to strike a deal, and I expect they will do their best to secure one. But tough negotiations lie ahead, with both sides making offers and counter-offers, deploying various bargaining tactics, and so on.

Patience is power

One factor that provides the parties with appropriate incentives to compromise, and reach a deal, is that bargaining is time consuming and time is valuable. The relatively short deadline of end of March 2019 could lead to impatience on either side, and is one of the key factors behind both sides compromising and reaching an agreement.

A key principle is that a party’s bargaining power is higher the less impatient they are relative to the other negotiator. So the terms and nature of the agreement will be better for the UK the less impatient it is relative to the EU negotiating team.

Who dares wins

The biggest risk takers are the most powerful negotiators, and their bargaining power is higher the more comfortable they are with risk relative to the other negotiator. These negotiations are inherently risky, and talks might breakdown for all sorts of unforeseen reasons.

Perhaps the EU is relaxed and risk-loving, while the UK is risk-averse. In that case, the UK will look to reach an agreement as early as possible, whereas the EU will be happy to leave it until the last few days before the deadline arrives. This usually works – as is witnessed by other kinds of negotiations where a deadline is present, such as during transfer negotiations between football clubs.

Weakness becomes strength

One strategy for bargaining is “the commitment tactic”. This involves a negotiator taking action prior to and/or during the negotiations which partially commits them to some favourable bargaining position. Bargaining power is higher the larger the cost of revoking that commitment. So it is as though this “weakness” – the high cost of backtracking – becomes a source of bargaining strength.

Theresa May has done this by saying that free movement of people won’t be something that she would agree to, and her negotiating team are aware that she would be seen as backtracking if they made a deal which allowed for that fact. Her deployment of this tactic may help get her where she wants but only to some extent. Perhaps with a deal that allows for some restricted form of migration from the EU.

These are some of the main principles of bargaining to watch out for as the UK enters its negotiations with the EU. If the UK does get a good deal, the prime minister’s patience and the fact that she is willing to take risks and make big commitments will have been a large factor.